Euro falls as Renzi resigns following Italian referendum ‘No’ vote, but major declines mitigated by Austrian election result
The Eurozone leapt into the spotlight this Monday morning, with Italy’s decision to vote ‘No’ to historic constitutional reforms, and the subsequent resignation of PM Mario Renzi, creating a fresh headache for the euro.
With more than 60% of the Italian public voting against his proposed reforms, Renzi became the latest global leader to disappear in ignominy this morning, sparking fears about the strength of the European Union as a whole. This referendum was seen more as a judgment call on Renzi’s premiership than the reforms on offer; by rejecting the PM Italy has displayed the same kind of anti-establishment populist sentiment that has defined 2016 for the UK and US. Beyond Renzi’s resignation the consequences of this vote are hard to read, though it does potentially open the door for anti-EU parties like the Five Star Movement AND presents another blow to Italy’s incredibly fragile banking sector.
As is to be expected the euro bore the brunt of the initial market-reaction, briefly slipping to a 20 month low against the dollar. Now, however, the currency seems to have calmed down; it is back above $1.06 against the greenback, while against the pound it has lost just 0.3%. The defeat of the far-right Norbert Hofer by Alexander Van der Bellen in Austria provided a chink of light for the euro, preventing its more excessive losses from sticking around for too long.
While the euro has fallen, the reaction of the Eurozone indices suggests that they aren’t too worried about the region’s current political situation. The DAX rose 100 points, recovering most of the losses it incurred at the end of last week, while the CAC jumped 0.4%. Even the FTSE managed to eke out a mild 0.2% rise despite the gains made by the pound.